MercoPress. South Atlantic News Agency

US triple-A credit rating at risk, if finances are not put in order

The United States is at risk of losing its triple-A credit rating unless it starts putting its finances in order, a former head of the agency in charge of fiscal accountability said in the Financial Times on Wednesday.

David Walker, former director of the Government Accountability Office, cited a warning from Moody's Investors Service nearly two years ago about ballooning healthcare and social security costs.

“Signs are abound that we are in even worse shape now, and that confidence in America's ability to gain control of its finances is eroding,” the former comptroller general and current chief executive of Peter G. Peterson Foundation, wrote in a Financial Times column.

His comments helped push the dollar index to a four-month low as investor’s refocused attention on rising U.S. debt issuance, traders said.

“Prices have raised on credit default insurance on US government bonds, meaning it costs investors more to protect their investment in Treasury bonds against default than before the crisis hit. It even, briefly, cost more to buy protection on US government debt than on debt issued by McDonald’s. Another warning sign has come from across the Pacific, where the Chinese premier and the head of the People’s Bank of China have expressed concern about America’s longer-term credit worthiness and the value of the dollar, wrote Walker.

In the column Walker says the US government has had a triple A credit rating since 1917, but it is unclear how long this will continue to be the case and “either one of two developments could be enough to cause us to lose our top rating”.

“First, while comprehensive healthcare reform is needed, it must not further harm our nation’s financial condition. Doing so would send a signal that fiscal prudence is being ignored in the drive to meet societal wants, further mortgaging the country’s future”.

“Second, failure by the federal government to create a process that would enable tough spending, tax and budget control choices to be made after we turn the corner on the economy would send a signal that our political system is not up to the task of addressing the large, known and growing structural imbalances confronting us”.

For too long, the US has delayed making the tough but necessary choices needed to reverse its deteriorating financial condition insists Walker who adds that it could be argued that the US government does not deserve a triple A credit rating based on current financial condition, structural fiscal imbalances and political stalemate.